"You can't believe how bad it's going to get"

[w¡n9Nµ7 §£@¥€r 123]

A town right on the default line

March 16, 2007

Oscar De Leon was washing his car a few weeks ago when he noticed a piece of paper stuck to the front door of the house across the street. He strolled over to check it out.

"You are in default," the paper proclaimed. "Unless you take action to protect your property, it may be sold at a public sale."

De Leon, who lives in the Riverside County town of Perris, knew this official notice of foreclosure was bad news. Not just for the home's owners, who tried to sell for months, failed and quit town for parts unknown.

It was bad for De Leon too, a 28-year-old employee of a food service distribution company. He and his wife, Sandra, pay their mortgage every month, happy they can raise their three children far from the urban problems of Los Angeles.

Two years ago, this neighborhood didn't exist. De Leon, who bought in June 2005 for $324,000, got the first home on the street, the first house he had bought anywhere.

"I like it here," he says, "They could offer me a house for free in L.A. I'd take it and sell it, but I'd never live there."

It's the age-old dream of the suburbs. Now, it's at risk in communities throughout the country, thanks to lenders too eager to lend and borrowers who thought houses would dispense money forever, like magical ATMs.

In California, Perris is at the epicenter of mortgage problems. From November to January, 177 homes in Perris' central ZIP Code have received notices of default, the first step toward foreclosure.

That's about 1 of 53 houses, the highest level of any ZIP Code in California, according to a Times analysis of statistics provided by DataQuick Information Systems. The neighboring towns of Lake Elsinore and Moreno Valley came in second and third.

A few doors away from De Leon's house sits a second empty property foreclosed on by its lender. "A divorce," he explains. "The husband couldn't afford it alone. He was paying $2,500 a month. Ridiculous."

A few blocks away is a third foreclosure, this one only a frame skeleton abandoned by its builder. A young woman who answers the bell at a fourth house says through the screen door that she doesn't know anything about the place's being in default. She pays rent to someone who pays the owner, she says; please go away.

The trouble stems partly from a proliferation in recent years of so-called sub-prime loans to borrowers with shaky credit or erratic income, borrowers who are more likely to miss payments and not catch up. Such defaults are typically in communities like this one — a long way from the high-priced and built-out coast. The Inland Empire is full of new and almost-new homes and commuters who often travel great distances to jobs to pay for them.

The default rate in Perris compares with 1 in 105 homes in Palmdale, 1 in 150 in Van Nuys, 1 in 189 in Northridge and 1 in 283 in Altadena. Many coastal communities have so few default notices they don't even place in the top 400 ZIP Codes.

There are other signs of distress. De Leon's development, called the Villages of Avalon, has an unusual number of homes for sale, considering it's so new that the Google Earth satellite scan still shows much of it as dirt.

At the top of his street, next to the charred shell of a house that mysteriously burned a few months ago, is a house for sale. The house immediately next door is on the market too. A few doors away from De Leon's home in the other direction is a third house looking for a buyer. Some owners are trying to rent their places out, advertising with little signs on the front lawn.

De Leon fears what will become of his neighborhood if it becomes dominated by renters.

"You get people who don't care about the neighborhood and don't take pride in it," he says.

He's hardly alone in that view.

"If people start to rent, that's when you start to worry," says De Leon's next-door neighbor, Jose Serrano.

Serrano, 34, grew up in Long Beach. He saw friends die in Long Beach. He still commutes there every day to work on the docks for Toyota Motor Corp. It's an hour in the morning and two hours coming home, a grind he suffers for the sake of his three young kids.

Like De Leon, this is Serrano's first house. Like his friend, he is bracing for the future, hoping that even if things get worse now, they'll get better later.

"A lot of people got in over their heads. They are going to lose their homes," Serrano says. "The market goes up and down. You have to look at it for the long term, ride it out."

Good advice, but Perris could be in for a rough trip. Named after a railroad engineer, it began in the late 19th century as a stop on the Barstow-San Diego line. For most of the next century, it was a farming town — sugar beets, potatoes, alfalfa.

Cheap land drew the developers, and cheap houses drew buyers. The market may have slid over the last year, but the hustle remains. The billboards on the way into town extol 11 active developments. Signs on the city streets point visitors to them. So do curbside salespeople holding oversized arrows, and balloons floating over sales offices.

But many intersections tell a more downbeat story. Telephone poles are festooned with signs that say, "Behind in payments? We can help" or "Foreclosure loan specialist" or "We'll buy your house in nine days or less."

Lily Quinlan is thoroughly exhausted and a lot smarter about real estate than she used to be. Quinlan, 30, just sold her three-bedroom house on a cul-de-sac in one of Perris' older developments.

It went on the market last June, for $395,000. Her first agent reduced it to $383,000, then $375,000, then $369,900. Her second agent dropped it all the way to $333,000, where it finally found a buyer.

While the price was descending, Quinlan's ability to pay the mortgage was becoming intermittent. Her husband left the Navy to start a new job in Florida at a lower salary. World Savings, their mortgage company, started sending default notices.

The couple bought in 2002, as the boom was beginning. At its peak, the house was worth more than three times what they paid for it. But they refinanced and took cash out to do upgrades on the house, and then they refinanced again because — well, Quinlan isn't sure why.

She's learned this about lenders and loan agents: "They make it look like they are trying to do all this for you, but the reality is that it was mainly for them. They got their chunks out of you, and then they put you out to the wolves."

Even when she was in default over the last few months, the offers continued. "They kept calling and calling, saying, 'You won't have any payments for two months.' And I'm like, 'Dude, the last thing I need is another refinance.' "

She's sorry to be leaving for Florida. If their house had not increased in value, if it was still worth exactly what they had paid for it four years ago, they could afford to stay. But the boom ruined everything, and so Quinlan was selling what she could at a yard sale before packing for the movers.

Some of the clothing and dishware spread on the driveway belonged to her neighbors, Ron and Dawn Blacic. Their house went on the market this week for $369,900.

"The price you got is going to drag down our price," Ron tells Quinlan.

"Thanks, Lily," cries Dawn as she pretends to punch her.

The Blacics, who are moving to Yucca Valley, owe $372,000. They refinanced once, taking out cash to pay for their wedding and other bills. "We figured the value would go up and up, and it didn't," says Ron.

After the agent's cut, the couple will need to bring a check to the table for $22,000 or so to avoid destroying their credit. They're counting on a loan from Dawn's parents.

"We want to purchase another home," explains Ron, who works for a sanitation supply company. "We don't want to wait 10 years until our record is clean again."

If the house sells for their asking price, the Blacics will come out about even on their first real estate venture: First the house dispensed money, then they had to give it back. For them, it will be as if the boom never happened.

On the other hand, if the house doesn't sell immediately, they'll have to rethink their plan. They can borrow only so much.

The onset of the spring home-buying season is a matter of acute concern to the Blacics, as it will be to many others.

On Tuesday, the house in foreclosure across from Oscar De Leon's home will go up for auction.

Public records show the mortgage was held by New Century Financial Corp., the Irvine-based sub-prime lender that collapsed this week amid rising defaults.

De Leon doesn't remember much about the former owners. They had two young kids. The father might have been in construction. They put the house up for sale last fall, barely a year after moving in.

In November, a moving van showed up and the family quietly left. The house stayed on the market; the agent watered the lawn to keep it presentable. Then one day he quit too. The lawn is starting to brown.

[cbd2cai 0]

Here's the state of the DFW area:

D-FW foreclosure postings up 18%

ARMs, loose lending help swell area foreclosure postings

09:32 AM CDT on Friday, March 16, 2007

By BRENDAN M. CASE / The Dallas Morning News

bcase@dallasnews.com

Homes posted for foreclosure auction in April rose 18 percent in the Dallas-Fort Worth area from the same month last year, the Foreclosure Listing Service said Thursday.

That's up slightly from the 15 percent increase in the first three months of the year compared with the same period a year earlier.

"We're not seeing the light at the end of the tunnel yet," said George Roddy, who heads the Addison-based research firm. "We have not seen year-on-year figures go down in the last few years. It's just a continuous climb from 2001 to this date."

In the 10-county Dallas-Fort Worth area, 3,452 homes are posted for foreclosure auction in April.

Fueling the foreclosures are interest rate hikes, rising living expenses, high consumer debt and relaxed lending standards, Mr. Roddy said. He doesn't expect foreclosures to fall anytime soon.

"There's really not a good reason for foreclosures to go down," he said. "The only reason they would is if lenders tighten up their lending practices, if they turn away people who don't have good credit."

Indeed, some of the rise in foreclosures is due to the growth of subprime loans, which are extended to customers with low credit ratings.

Subprime loans have put thousands of people in homes in recent years. But such loans are also more likely to go into foreclosure than prime loans are.

Nationally, 4.5 percent of subprime mortgages were in foreclosure at the end of 2006, compared with 0.5 percent of prime loans, according to the Mortgage Bankers Association, a lenders' trade group in Washington, D.C.

Many subprime lenders have closed their doors in recent months, and others have tightened their lending standards.

Fears that a credit crunch would contribute to an economic slowdown have made stock markets volatile this week.

The foreclosure rate could get even worse this year, both in Texas and in the nation as a whole, partly because of the popularity of adjustable-rate mortgages, in which monthly payments are periodically adjusted to reflect changes in interest rates.

Higher payments

Interest rate hikes in recent years have made ARMs more expensive, adding hundreds of dollars to many borrowers' monthly payments.

More homeowners could find themselves in similar straits this year as adjustable-rate mortgages reset their rates.

"We could be in for a little bit of a shakeout," said Craig Jarrell, who oversees the Dallas-area operations of Pulaski Mortgage Co. "I'm afraid that we've just begun to see the effects of all the negative factors: the subprime, the delinquencies, the rate adjustments on the ARMs."

Home prices could fall in neighborhoods with lots of foreclosures, Mr. Jarrell said.

Weathering the storm

But he expects the market to weather the storm.

"There's going to be a little bit of pain," he said. "But we can handle it, and I think the economy is mudding through it."

In North Texas, Collin County had the largest increase in foreclosure postings for April, up 40 percent from the same month a year ago, according to Foreclosure Listing Service.

Over the same period, foreclosure postings rose 11 percent in Dallas County, 20 percent in Tarrant County, 20 percent in Denton County and 29 percent in Rockwall County.

Total residential foreclosure postings since the start of 2007 numbered 14,307, up 15 percent from the comparable period a year ago.

Working it out

Not all homes posted for foreclosure sale are sold.

In many cases, forced sales are delayed or the borrower reaches a new agreement regarding the debt.

Texas has been one of the nation's top foreclosure markets in recent years.

"What it tells us is that we're in the midst of some sad economic times for a lot of people," Mr. Roddy said.

[Ban Hammer 13,678]

a common theme i spotted in that - taking out a loan against the equity to pay for something. bad idea.

[w¡n9Nµ7 §£@¥€r 123]

a common theme i spotted in that - taking out a loan against the equity to pay for something. bad idea.

very bad idea, but the cheap money pimps were pushing it and Americans who insisted on living beyond their means couldn't resist it.

Edited March 16, 2007 by Gupt

[almaty 19]

a common theme i spotted in that - taking out a loan against the equity to pay for something. bad idea.

very bad idea, but the cheap money pimps were pushing it and Americans who insisted on living beyond their means couldn't resist it.

a recipe for danger...and a classic case of thinkign with one's emotions and not one's head

[Queen Jenn 0]

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.

(keeping my fingers crossed)

My sentiments exactly. Then my fiance and I will actually be able to get a house. YIPPEE!!!!!!!!!!!!!

[mawilson 2,133]

My sentiments exactly. Then my fiance and I will actually be able to get a house. YIPPEE!!!!!!!!!!!!!

If the trend continues for another year or so, I just might be able to afford that dream apartment I always wanted.....

[w¡n9Nµ7 §£@¥€r 123]

mawilson,

I just don't see any really nice units in well-run buildings in the nicer parts of Manhattan going down 40%. 40% bloodbaths in our area will happen in the exurbs and in the part of Manhattan and the boros that 'well to do' people previously wouldn't be caught dead living in (think Spanish Harlem). JMHO.

[mawilson 2,133]

mawilson,

I just don't see any really nice units in well-run buildings in the nicer parts of Manhattan going down 40%. 40% bloodbaths in our area will happen in the exurbs and in the part of Manhattan and the boros that 'well to do' people previously wouldn't be caught dead living in (think Spanish Harlem). JMHO.

They are already down 10-15%. Apartments that cost $800,000-$1,000,000 only a year ago

are now down to $600,000-$800,000. Right now, I can get a 1-bedroom in the Village for

$400,000+. We're getting there man.

[w¡n9Nµ7 §£@¥€r 123]

Yeah the 10-15% drops have been pretty much everywhere. I'm talking about the 40-50% extremes... if those happen everywhere in the region, then that would be atypical. I read somewhere that in the last serious RE downturn, up to 50% price drops occurred, but they were in isolated pockets.

[Queen Jenn 0]

My sentiments exactly. Then my fiance and I will actually be able to get a house. YIPPEE!!!!!!!!!!!!!

If the trend continues for another year or so, I just might be able to afford that dream apartment I always wanted.....

Now THAT looks like a fantastic place. Good Luck!!!

[mawilson 2,133]

Yeah the 10-15% drops have been pretty much everywhere. I'm talking about the 40-50% extremes... if those happen everywhere in the region, then that would be atypical. I read somewhere that in the last serious RE downturn, up to 50% price drops occurred, but they were in isolated pockets.

Well.... a 40% drop is still possible if the housing downturn triggers a global recession,

à la The Great Crash 1929, but that would be a Really Bad Thing.

Edited March 16, 2007 by mawilson

[w¡n9Nµ7 §£@¥€r 123]

lol yes. it would be.

[zyggy 9]

We can't forget Detroit...

Job cuts and risky loans get the blame in the Detroit area, where about one in 80 homes started the foreclosure process in the third quarter. The fire-sale prices are hurting other homeowners, too.

By Melinda Fulmer

Empty houses with long, weed-choked grass, court orders pasted in windows, streets littered with "for sale" signs -- these sights are becoming a familiar part of the landscape in Detroit, where people are losing their houses at the fastest rate in the nation. Rising unemployment, a sliding real-estate market and risky lending are the culprits behind the Motor City's surge in foreclosures, analysts say.

"It's the worst area in the country, in terms of the economy," says real-estate consultant John Tuccillo.

More than 10,000 homes in the Detroit area entered some stage of foreclosure in the third quarter, a 42% jump from the previous quarter and a 121% jump from the same time last year, according to foreclosures listings and RealtyTrac, a data provider in Irvine, Calif. To put that number in perspective: One in every 80 houses in Detroit began the process of returning to the bank in that time -- a rate that is almost five times the national average.

Real-estate agents and neighborhood activists say job cuts -- especially at the Big Three automakers, Kmart and the businesses that served them -- have begun to take their toll on the local housing market. Families that had held on for a year or two on one income are now out of money and out of options.

"People were buying without a lot of cushion," said Tom Goddeeris, the executive director of Grandmont Rosedale Development, a nonprofit dedicated to revitalizing northwest Detroit. That meant when they were hit with a job loss or drop in pay, many buyers were unable to scrape together enough savings to make their monthly mortgage payments.

Sliding real-estate prices in Detroit have complicated the situation, reducing the amount of equity people have in their homes, making it harder for recent homebuyers to get lines of credit or sell their houses for enough money to pay off their mortgages.

It's not just low-income neighborhoods suffering. Foreclosures have pushed down prices across the board, says Detroit RE/MAX agent Tanya Thornton-Green, making other properties hard to move.

"My listings that are at market value really don't get showings," she says. "My bank-owned properties get showings every day."

Big breaks in prices

Chalk it up to the fire-sale prices lenders are willing to take in order to get homes off their books. One foreclosure property that Thornton-Green represented was appraised at $60,000 but was sold by the bank for $30,000. Another, which carried a previous mortgage of $155,000, was listed at $113,000 by its lender.

It's hard to compete with price breaks like those, says Martin Bowman, a medical-device salesman who has been trying to sell his condo in the Detroit suburb of Southfield, Mich., after taking a new job in Minneapolis.

After six months on the market with only a handful of walk-throughs, Bowman has reduced his condo's $159,000 selling price by $5,000 -- less than what he paid for it three years ago.

He plans to hang on to that price as long as he can. But with another foreclosure unit in his complex selling for $120,000, he wonders whether he will eventually be forced to rent out his unit.

"I just can't go as low (in price) as the foreclosed properties," he says. "Even if I were to pay the mortgage for a full year, I wouldn't lose as much money as if I lowered my price to what some of the other condos are going for."

On average, a foreclosure property sells for 27% less than other properties in the area, says Rick Sharga, a RealtyTrac vice president. In neighborhoods with a large number of bank-owned properties, that number can slide even further. In Ohio, for example, the average foreclosed home sells for 43% less than other homes, according to RealtyTrac.

However, if these rock-bottom properties linger on the market, they tend to pull down prices of the homes around them, narrowing that gap. In a down market such as Detroit, for example, foreclosures can remain on the market for six months to more than a year, says Sharga, as properties move through the foreclosure process from notice of default to trustee sale to bank ownership and perhaps even a transfer to the Federal Housing Administration.

In Detroit's historic Rosedale Park, with its stately 1920s Tudors and Colonials, the rising tide of foreclosures has become a problem that neighborhood preservationists can no longer handle.

"There was a time not long ago when we could buy problem houses, houses that had gone in foreclosure or tax forfeiture," to fix up and sell, says Goddeeris, of Grandmont Rosedale Development. Now, he says, the number of foreclosures has far eclipsed his group's budget.

The best they can do now, he says, is help his neighbors track down the lenders responsible for the empty foreclosure properties on their block, so they can stay on top of routine maintenance, such as cutting the grass or repairing damage.

For first-time buyers without a house of their own to sell, these properties are a real opportunity, Thornton-Green says. But many buyers appear to be waiting to see how low the market will go. And that's making it hard for even real-estate agents to stay afloat without working side jobs. "I know a lot of people who have gotten out of the business in the last year," she says. Thornton-Green is considering a move to insurance sales or maybe a return to school to get an MBA.

Fort Lauderdale, Denver also foreclosure leaders

Detroit isn't the only market feeling the sting of a real-estate hangover. Foreclosures went up 43% nationally in the third quarter from the same time a year ago, with the Fort Lauderdale, Fla., and Denver areas posting the second- and third-highest rates of foreclosures, respectively.

Analysts blame the surge in Fort Lauderdale on the number of investors who bought into the market too late to flip their properties and make a profit. In Colorado, Sharga says, layoffs coupled with overbuilding and a higher number of risky adjustable mortgages appear to be to blame. Other metro areas with high foreclosure rates include Miami, Indianapolis, Dallas and Fort Worth, Texas.

Worsening matters, in some cases, is a wave of adjustable-rate mortgages resetting, or bumping up to a higher interest rate, moving monthly payments as much as 25% higher.

Sharga expects between 1.2 million and 1.3 million properties to move into some stage of foreclosure by the end of this year -- an increase of more than 40% from the 850,000 posted last year.

That sounds bleak, analysts say, but the good news is that the surge in foreclosures has likely reached its peak. Though foreclosures should continue to rise next year, Sharga says, he doesn't expect it to continue at the same rate as this year.

Indeed, in some cities such as Detroit, where lenders are overloaded with foreclosure properties, he says lenders are starting to lengthen the period of time they will work with a homeowner to receive payment before they foreclose.

Goddeeris says his group has been trying to publicize hotlines that help homeowners avoid foreclosure. But for many, he says, the credit and budget counseling comes too late.

"For many of the people . . . this all should have taken place two, three or four yeas ago when they had the best chance to do something about it. Dealing with it now is difficult."

My brother in law had the same peoblem.. he had a condo right near the hospital that he worked at .. he then married my sister and didn't need it.. he tried selling it, but there were so many foreclosed condos in his complex, there's no way he could sell it for what he bought it for... so now he's renting it at a loss... becuase guess what, there's a whole lot of other people who are doing the same thing because they couldn't sell and had to leave town to find a job and it's depressing rent prices... bad, bad, bad...

I am sooooo glad that I have a low fixed rate short term mortgage now... everyone though I was a caveman because I wasn't getting an ARM and insisted on a 15-year fixed... guess who's laughing now...

And everyine thought I was crazy when I only used my equity line for improvements around the house... at least I'll be able to recoup a good portion of the home equity line in the increased value to the house...

Edited March 16, 2007 by zyggy

[Caladan 19]

I hope it deflates rather than pops, but it's going to have to come down sometime soon no matter what. People my age (27) are going to want to buy houses for when they have kids and we just don't have the kind of capital to compete with the boomers.